Recently enacted Western sanctions will ultimately have little to no impact on long-term crude oil pricing. Diplomatic trading sanctions have historically been an ineffective tool used by political leaders for largely domestic policy consumption. The goal of course is to change the policy of another nation state, yet rarely have they succeeded. President Kennedy enforced sanctions that remain to this day against Cuba. President Carter withdrew from the Summer Olympic Games in Moscow and now, the West seeks to curtail Iranian exports of oil by up to 50 percent.

Our nation has reduced imports of Iranian oil ever since the Iranian hostage crisis over thirty years ago. A reduction in Iranian oil, however, could translate into less worldwide supplies, thereby driving up the cost of crude. That will not happen because numerous countries have been exempted from the sanctions and because other producers have already began making up for any resulting shortfall. In sum, the sanctions sound good on paper, but as enacted, are largely ineffective at actually curtailing Iranian oil and will be even less successful at changing Iranian behavior.

We are already seeing crude oil prices returning to pre-event levels. So what caused the sudden spike?

Recall that when sanctions were announced, it appeared as though Iranian oil might actually come off the market. That, in combination with Iranian threats to close the strategically important Strait of Hormuz through which all Persian Gulf oil flows, helped traders and brokers push pricing models higher. The markets looked for political signals from Washington to counter Iran’s claims but unfortunately, the U.S. played right into Iran’s hands by failing to respond with a sufficient diplomatic and military show of force.

Iran’s military lacks the sufficient naval assets to actually block the Straits and while they could cause a significant disruption, Iran is not about to risk an all-out confrontation with friends and foes alike over closing down oil production to the Gulf States. Instead, Iran was able to set off a feeding frenzy among the markets, which pushed oil well beyond sustainable levels

Iran’s foreign policies, and the West’s weak response, did cause harm to our economy for millions of consumers and businesses. Moreover, the temporary price spikes also helped cool world economies. The fact that Iran was able to produce this type of negative reaction dramatically underscores the need to continue to reduce our dependence on overseas oil. In fact, energy prices have already reversed course, closing markedly higher based on new reports that Iran’s National Security and Foreign Policy Committee has drafted language aimed at blocking oil shipments through the Straits based upon any countries supporting the latest round of sanctions.

President Obama must capitalize on the opportunities to offset overseas oil by making strong policy statements aimed at ensuring the world that the U.S. will not allow Iran to block any shipments through the Strait. Moreover, the administration must embrace additional production of North American energy sources. Whether intentional or by accident, our domestic and foreign policies must take into account the actions of other nation states and the most effective way to reduce the effectiveness of world events on energy markets is to embrace additional production of North American resources.

Canada and Mexico have long supplied the bulk of our nation’s oil, and Canada in particular, with vast amounts of oil reserves stands ready to completely replace imported oil from Saudi Arabia or Venezuela which is why embracing North American projects such as Keystone XL are vital to our interests. Not only would this $7.2 billion privately funded project provide a secure source of oil from our close ally, it would also create tens of thousands jobs. We must invest in our future and our security, and approving realistic infrastructure programs such as Keystone XL is a first step toward improved security.

Current conditions have helped make imposing sanctions on Iranian oil more effective and easier to implement. Although Iranian exports have already fallen by 700,000 barrels per day, increased output in Iraq, Saudi Arabia, and the United States, especially from fields producing “tight oil” in North Dakota and Texas, has more than offset the decline in Iranian exports. Declines in consumption of gasoline in the United States, slower growth in China and India, and recession in the Eurozone have led to lower demand. As a consequence, prices have fallen sharply since their peaks.

These sanctions bite. Although Iran has reserves of $150 billion, concerns about the future value of the rial have resulted in a sharp decline in the value of the currency against the dollar, triggering a surge in inflation. Disruptions in imports have hit the economy hard.

By and large, sanctions have been unsuccessful in forcing countries to change policies considered to be of vital importance to the offending country. However, they have sometimes been effective at degrading capabilities. Sanctions greatly weakened Saddam Hussein’s ability to threaten his neighbors militarily and led to the abandonment of Iraq’s programs to create and field weapons of mass destruction. Sanctions serve to register displeasure with a country’s policies, signaling to the offending country that its current course of action could lead to conflict and to the citizens of the country that other countries disapprove of their government’s policies. Countries that impose sanctions also flag to their own citizens and other countries the extent of the differences: The more severe the sanctions, the greater the differences.

Economic sanctions can almost always be circumvented. Iran will be no exception. U.S. policymakers should understand that on-going U.S. effort to induce countries to stop importing Iranian oil will not put a halt to all Iranian oil exports. However, Iran will pay a cost. The sanctions have reduced the volume of Iranian oil purchased and is forcing Iran to offer discounted prices, thereby reducing the Iranian government’s revenues from oil.

Over time, governments under sanctions find better ways of circumventing the sanctions. Iran is unlikely to be an exception. However, the sanctions have imposed economic costs and have effectively signaled that not only the United States, but much of the rest of the world, see Iran’s policies on nuclear enrichment as a serious potential threat to the region and the world. Short of an armed attack, it is hard to find another means of so clearly communicating the concerns of the international community.

(These comments were submitted by Rob Walther, Senior Policy Advisor for Clean Energy at Third Way and Aki Peritz, Senior Policy Advisor for National Security at Third Way.)

This past March, the 24-hour news cycle was filled by pundits deriding the Obama administration for its handling of gasoline prices. With gas prices down 15% to $3.42 a gallon, those critics have gone silent. Yet, the EU and US sanctions on Iran that were recently put into full effect are leading some to predict a new rise in prices--just as we head into the primetime of the election year. It might make for interesting headlines, but the facts suggest the sanctions are unlikely to have a significant impact on American gas prices.

Global oil production has been rising at a time that the European economy is contracting and the market has weakened remarkably. Prices dropped to under $80 dollars a barrel last week. While news out of Europe of a bailout deal strengthened the oil sector on Friday, the current low prices will serve to cushion any impacts of Iranian oil curtailment. Also, let’s not forget that Iranian crude exports are already down nearly 40% from last year’s levels—yet this reduced output has not reversed the downward trend of world oil prices. What’s more, the six month waivers granted to China and nineteen other nations will provide an outlet for Iranian crude over the short-term, easing any strains on market.

Finally, it’s important to consider the economic and geopolitical force currently being exerted by Iran’s neighbors, Saudi Arabia in particular. Iran relies upon high oil prices to buttress its economy. By increasing production in its own oil wells to keep world prices low, Riyadh is straining Tehran’s economy and undermining its political regime. Saudi Arabia has said its increased output is intended to help avoid price spikes that could stunt the global economic recovery and cause long-term reductions in oil demand. But weakening Iran may also serve personal motives—beyond the usual Sunni-Shia tensions, Iran tried to murder Saudi Arabia’s top diplomat in Washington last year and continues to prop up a Saudi adversary in Damascus. But whatever its reason for doing so, Saudi Arabia’s willingness to increase production creates yet another safeguard against a rise in oil prices due to the Iran sanctions.

Some of the President’s detractors may actually hope that the Iranian sanctions lead to higher gas prices, which could cost him the White House. But, to the benefit of the country, the global economy, and Mr. Obama, the facts suggest otherwise. And if the sanctions are successful in deterring Iran’s nuclear ambitions without causing a significant increase in the cost of gasoline at home, the move could turn out to be a diplomatic and political slam dunk for the President.

The instability of the oil prices and our dependence on the global market has left our government and consumers at the mercy of OPEC and rogue regimes in some of the most unstable regions of the world. Yet, we continue to accept the status quo, and even celebrate gas prices dropping to $3.50! We must break from the notion that foreign oil is the only answer to our energy needs and act to change the situation for which we find ourselves. Failure to act will only fuel a debate for decades to come if we do not change our approach and begin to secure a path of energy independence for our nation.

The ability for the government to lower oil prices in the short term is extremely limited, as the oil market is a global one and there are so many factors that play into the price – production levels, hostile foreign governments, supply disruptions, speculation, natural disasters, global politics and foreign sanctions, just to name a few. If we are to continue to rely so heavily on foreign oil, then we will always be subject to price spikes and fluctuations, and ultimately, held at the mercy of OPEC and countries like Venezuela, Saudi Arabia, Nigeria and Iran.

This administration has been very supportive of renewable energy, recognizing the need to transition to a cleaner burning, renewable fuel that has both economic and energy security benefits. The ethanol industry applauds the administration’s efforts and the recent approval from the Environmental Protection Agency to allow the sale of E15 (gasoline with a 15 percent ethanol blend) in the commercial marketplace. This will help change the way America fuels up.

Currently, ethanol provides 10 percent of our nation’s fuel supply and with E15, the industry stands ready to increase our contributions, displacing approximately seven billion barrels of foreign oil annually. With continued investment in the next generation of biofuels, we can begin to take meaningful steps in eliminating the need for foreign oil.

As long as we continue to depend on foreign sources to supply most of our energy needs, we will continue to be vulnerable to the whims of rogue nations, dictators and countries in some of the most unstable regions in the world.

Now, more than ever, it is critical to break from the mindset that foreign oil will meet the demand for our continued and growing energy needs. Foreign oil is simply unreliable and no one can tell when the next price spike is coming, or if there could be a supply shortage. It is time we begin to reinvest right here in America. We have the resources and the technology to produce a clean burning fuel that is better for our environment and generates economic opportunities and jobs – that cannot be outsourced - right here at home.

By investing in renewable fuels such as ethanol and the next generation biofuels, we are investing in the future security of our nation, establishing a path to energy independence for our growing energy needs.

The sanctions being imposed on Iran are broadly supported and they are having the intended effect. The additional sanctions that go into effect on July 1 will turn the screws even more. But whether they will be enough to make Iran back away from its pursuit of a nuclear weapon capability is uncertain.

Oil exports are Iran’s major source of revenue. Recently, the EU decided not to insure tankers carrying Iranian crude, so the regime will have to rely solely on its own ships, and it doesn’t have enough to maintain its current transport load. Most reports indicate that exports from Iran are down around 30 percent, and that is likely to increase as some importing countries are able to find alternative suppliers.

When the sanctions were announced, there was a bellicose response from the Iranian leadership. The threat to close the Strait of Hormuz caused a jump in oil prices, but when it became clear that that threat was likely only bluster the market settled down. The fact that China is reducing its imports of Iranian crude ought to be interpreted as a strong signal to the Iranian leadership. As the July 1 date approached, the oil market continued to decline, so it is reasonable to conclude that the effect of the sanctions has already been priced into oil futures.

If in desperation, Iran does take retaliatory action and closes the Strait, it will result in military intervention, and in such a case Iran would be sure to suffer a disastrous defeat that could go beyond just sinking its Navy. The ramifications of that conflict are uncertain and there would certainly be unintended consequences. But, one thing is certain, the Strait of Hormuz would not stay closed for long. Any price spike would certainly be short-lived.

All developed nations have strategic oil reserves for just the type of contingency that the Iranian threat represents. These reserves could be tapped to alleviate turbulence in the markets. Since they have not been used simultaneously, it is almost certain that there would be some initial missteps and problems. But that’s the learning experience. The worst effect would probably be to push nations back into recession or make their existing recessions worse.

It’s unfortunate that sanctions always hurt citizens instead of the ruling elite, but the alternative – turning a blind eye to Iran’s quest for nuclear weapons – is far worse. The Iranian regime is unpopular and the economic impact of the sanctions is making it more so. In effect, these sanctions seek to affect bottom-up change. Should they fail, the chances of a military conflict between Israel and Iran increase significantly.

There are several clear lessons that should be learned from this crisis. First, sanctions are blunt instruments that rarely work perfectly as intended.

Second, we can reduce and are reducing our reliance on imports from the Persian Gulf. But, it is easy to forget that all “foreign oil” is not equal, and should not be viewed as commerce to be avoided.

Three, for many years the energy industry and energy analysts have been advocating more domestic production. We are getting that now by activity on private lands at the state level. As a result, EIA sees a reduction in imports that would have seemed improbable not long ago. Unfortunately, the federal government continues to slow walk offshore exploration and production as well as in Alaska’s coastal plain which would increase domestic production even more.

Finally, failure to seriously address our fiscal problems make us more vulnerable to effects of whatever actions Iran takes in response to the sanctions. Achieving a resilient economy and energy system is in our long term interest.

Partisan sniping on this issue is not helpful. The Administration has been able to marshal a broad coalition to support the sanctions and deny insurance for any vessels that would transport Iranian oil. That suggests skillful diplomacy and may be a case of not letting the best be the enemy of the better.

Applying economic sanctions to coerce Iran to suspend its nuclear program requires a delicate balancing act. On the one hand, the United States needs to apply enough pressure to compel Iran to come back to the negotiating table (as it has done). On the other hand, the United States needs to avoid applying too much pressure, which might convince officials in Tehran to do something drastic out of the belief that it is the least bad option, like attempt to close the Strait of Hormuz to energy exports from other Persian Gulf petroleum producers.

Granting waivers to China, Singapore and others so that these countries can keep purchasing Iranian oil helps strike this balance. As the pressure on Iran ramps up with the European Union’s sanctions going into full force yesterday, Tehran’s ability to continue to export petroleum to some consumers helps keep Iranian officials from perceiving themselves to be locked in a losing status quo, which could be dangerously counterproductive. Generally speaking, states that frame the status quo as a losing one are more prone to belligerent actions in the hope that they can renegotiate the status quo in their favor.

Of course, the exemptions themselves help the United States continue to gradually dial up the pressure on Iran. A condition of the exemptions, for example, is that China, Singapore and others must continue to decrease their energy imports from Iran even as they continue to purchase petroleum from the Persian state. Moreover, these exempted countries have considerable leverage over Iran. India, for example, has been able to negotiate oil payments with its own currency, the rupee. China, meanwhile, is in a position to negotiate a discounted price on Iranian oil. All of this helps tip the balance away from Iran and toward the United States and other concerned powers.

Above all else, though, the exemptions help the United States apply a key principle of coercive diplomacy: the promise of more pain to come if Iran fails to make progress in negotiations with the United States, the EU and others. The Obama administration has put a time limit on its sanctions exemptions, six months, which gives Tehran a limited window of opportunity to make progress in negotiations or potentially face additional economic pain.

Critics will be quick to judge the exemptions as evidence that Washington is not serious about putting pressure on Tehran. But by understanding the art of sanctions, one can easily see them as another step in a series of calculated moves by the Obama administration to manage Tehran’s reaction to a campaign of coercive diplomacy.

Because of sluggish global demand and ample supplies of crude oil on the world market, the Iranian sanctions have become an economic and political non-event, except in Iran itself. Though several months ago talk was rife about America dipping into the strategic petroleum reserve to restrain rising prices, this has not proved necessary in view of the dramatic 30 percent decline since early spring.

In fact, the United States has purchased very little oil from Iran in recent decades, though in today’s fungible global market it’s often difficult to ascertain the country of origin for a particular shipment of crude. For that matter, petroleum imports from the entire Middle East have declined by 40 percent since 2000 and, according to the U.S. Energy Information Administration, may be close to zero by 2020.

For economic and national security reasons, every President since Richard Nixon has reaffirmed the need to reduce America’s dependence on Mideastern oil. That goal has now been achieved, though perhaps more in spite of than because of U.S. energy policy. U.S. petroleum consumption peaked in 2005 and, as a result of efficiency gains and fuel substitution, we are unlikely to ever consume as much oil as we did in that year. At the same time, deepwater drilling in the Gulf of Mexico, along with the application of hydraulic fracturing to extract oil from shale formations across the U.S., has boosted America’s domestic production substantially in each of the last three years.

As the debate continues on securing even greater energy independence, the focus should not be on the U.S. itself but all of North America. Our NAFTA partners Canada and Mexico currently supply the bulk of our energy imports. The oil sands of Alberta constitute the third largest reserves in the world, and Mexico is now making it easier for American energy companies to own assets in that country. On our part, the Obama administration should approve the Keystone XL pipeline without further delay and rethink the recently announced decision to continue until 2017 the ban on offshore drilling off the Atlantic and Pacific coasts.